Todays article is a bit different from my usual in depth educational articles on how to improve your PPC performance.
That being said I think the point I’m going to make is an important one for both agencies and business management.
I was reading an article the other day that said:
73% of CEOs think that marketers (agencies included) don’t focus on return on investment.
Personally as a marketer I wondered how this could possibly be the case.
Virtually everything that I do and the marketers reading this post do is work towards improving the ROI of their marketing efforts.
In fact I may go as far as saying that 100% of marketers think that they focus on ROI.
So why is it that marketers feel that they are focusing on ROI but CEO’s think they’re not?
Why the huge gap in thinking?
The reason in my opinion is that in house marketers and PPC agencies fail to see the bigger picture.
A lot of advertising metrics don’t necessarily mirror business metrics.
I’m not talking about vanity metrics like impressions, CTR, video views etc.
I’m actually talking here about metrics such as conversions and cost per conversion that marketers consider to be strong indicators of business success.
Now you might rightly be wondering as a marketer if your generating more conversions and cutting the cost per lead that you’re generating the business more profit right?
Or at least I would assume this was the case with the thousands of agencies that write case studies showing how they have cut cost per lead and increased the number of conversions.
But you never really see agencies that publish case studies showing how much more profit they have generated.
Generating business more profit is much more complex than simply generating more conversions or cutting the cost per conversion.
You must take into consideration many more factors such as the business model, employee utilisation and so on.
Let me explain how this might work for a call centre that is using Adwords to generate leads
Say you have a 10 person call centre which you are driving leads for using Adwords that has varying number of staff.
Most marketers and agencies would focus on generating the maximum number of leads at the smallest possible cost.
Most marketers and agencies think that generating the maximum number of leads at the smallest possible cost will generate the business more profit, but it will not.
If the call centre has capacity to take say 120 calls per hour (12 calls per operative) however you are only generating 48 calls (4 operatives busy) from your campaign by trying to generate the maximum possible leads at the smallest possible cost your missing the bigger picture.
Do you think the business owner would rather spend say another £80 per hour buying more expensive leads to keep all of their staff busy?
Or waste £120 worth of wages an hour on staff that have no calls to answer?
Here in Adwords it looks like your doing a great job as an in house marketer or an agency generating more cheap leads, but from the business owners perspective your not focusing on generating him or her more profit.
100% of the time he is going to choose to spend more money per lead and keep his staff busier because he would make £40 more profit overall.
Likewise if your generating enough calls for 4 operatives and they are all at lunch your going to be overbuying an lot of leads that will be wasting the business owners money.
Here what you need to be doing instead is building your own algorithmic models that change bids in Adwords using your own business data.
So you can increase your bids and buy more leads when employee utilisation is low and decrease the bids where there is fewer call centre operatives to answer calls.
This can be achieve using the Google Sheets API and the Adwords API so you can bid in Adwords based on business data.
Another good example comes from business who sell training courses, or who have a fixed number of seats / rooms already paid for such as hotels and airlines.
This was what gave me the inspiration to write this post.
I was recently speaking with a business owner who provided training courses and generated leads using Adwords
By looking at their business model the cost to put a class on was fixed and their was a fixed number of seats.
Lets say for example (not the real figures)
- Each class had 10 seats
- The cost to hire the venue and the trainer was £1200
- The cost per ticket was £600
- Each customer cost roughly £200 in ad spend and sales persons time to generate
Therefore the break even number of class members was 3 (£1200 for the venues + 3 x £200 for the attends)
Anyone who attended a class with 3 more more members in that cost less than £600 in ad spend and sales persons time to generate was profitable.
If they had focused on generating the maximum number of leads at the smallest possible cost they would have generated about 5 class attendees at a profit of £800 per class (5 tickets at £600) – (5 x £200 for ad spend + 1200 for venue and trainer) = £800
But instead by determining the demand (number of leads required) and lead time required to generate the interest to sell a seat on a course It would be possible to increase the bids using a script based on the number of empty seats on the course so it was filled up.
So instead they would end up with something that looked like this
(10 tickets at £600) – (10 x £350 +1200) = £1300
This would increase their cost per lead significantly in Adwords compared to the number of leads generated, hut the business owner would love the results because he would generate more profit.
Even better by filling the classes they would generate more referrals and reviews because more people were attending the course which generated even more profit.
It is also possible for them to increase the bids to buy more expensive leads to ensure that classes broke even and did not have to canceled where there was less than 3 people signed up to the course.
Once again this was done using the Adwords API and the Google Scripts API to bid in Adwords based on business data in Google Sheets.
The key to marketing success is to focus on business success.
If you want to be a great marketer you need to fully understand the business model and how it generates profit.
You then need to deliver a solution that focuses on business success metrics such as bottom line profits as opposed to vanity indicators of success such as the number of conversions and cost per conversion.
I appreciate there are some good marketers out there that do focus on business success and this article is not aimed at you, instead it is aimed at the scores of marketers that fail to see the bigger picture.
Looking forwards to hearing peoples thoughts on this in the comments section below.